Year-end deadline for allowances is only days away: Act now to claim key tax breaks

Less than two weeks remain until the end of the tax year on April 5 – time enough to get your finances shipshape. Unsure of which tax allowances apply to you or your family? Then follow Financial Mail’s checklist.

Isas and Jisas

Despite our demands for Isa equality, in this tax year the frustrating fact remains that cautious savers who want to leave their money in cash can put only £5,640 into an Isa. Those who are prepared to risk money on the stock market, such as Paul Gowans (see below), can plough in £11,280.

Whichever the category, Isas offer valuable tax-proofing. Some stocks-and-shares Isa savers have amassed accounts of more than £1 million by maximising their entitlements and picking successful investments.

Informed: Paul Gowans invests in low-cost stock market trackers

In many cases, cash, shares and other existing investments can simply be moved into an Isa – saving the owner future tax but not requiring them to find more money now.

As much as £1.3 billion in unnecessary tax is paid each year by savers’ failure to use their Isa allowances, according to Unbiased, the professional adviser search website.

Junior Isas (Jisas) allow families to save in a similar way for children under 18, with this tax year’s limit set at £3,600 per child. Children born between September 1, 2002 and January 2, 2011 (the period when the old Child Trust Funds were available) have not until now been able to have Jisas, but the Chancellor said he would consult on scrapping this rule. Financial Mail will report.

More...

Wealthy savers who have used up their Isa allowances should consider VCTs. Investments of up to £200,000 a year attract tax relief of 30 per cent. VCTs must be held for five years but any dividends and gains are tax-free.

Providers vary widely in quality and experience so picking the right one is important. Established providers include Puma (part of Shore Capital Group) and Albion. Smaller investors – the minimum investment is typically £5,000 – can undertake their own research into the 20 or so available VCTs using websites such as Bestinvest or Taxshelterreport. Bigger investors, perhaps using VCTs as a long-term alternative to pensions, should seek expert advice.

Pensions

Though Ministerial tinkering has eroded the benefits of pension saving, the fundamental perk of tax relief on contributions is still there.

For most people the £50,000 annual cap on contributions is more than ample, but wealthy investors should at least consider their options while there is time. Those paying tax at 50 per cent should think about topping up their plans before April 6 when the top rate drops to 45 per cent – as does the tax relief they will earn.

Gifts and inheritance tax

The sum you can bequeath before inheritance tax at 40 per cent is due on your estate will be frozen at £325,000 until 2019. But each tax year people with estates worth more than this can give away a total of £3,000 in a single gift, without this having future tax implications. Any number of smaller gifts of £250 or less can also be made.

Donations

Aa with pensions, gifts to charity attract tax relief at your highest rate. So donors in the 50 per cent tax band should make gifts now before the relief, along with the top rate of tax, drops to 45 per cent from April 6.

Where to look if you want a stocks and shares Isa

Despite economic woes here and panic in the eurozone sparked by Cyprus’s financial meltdown, world stock markets are soaring.

The FTSE 100 is up 85 per cent since its 2009 trough and now seems a good time to use your Isa to grab a piece of this growth.

But how? With thousands of combinations of funds and shares to choose from, where do you start?

The cheapest way to buy stocks and shares is via online brokers. The best include Alliance Trust Savings (alliancetrustsavings.co.uk), Charles Stanley Direct (cs-d.co.uk) and FundsNetwork (from Fidelity).

With all of them you will have to choose your own investments. But crucially, all these sites also offer some information, tools and guidance about which funds could be good investment opportunities.

Paul Gowans, 50, has used FundsNetwork to manage his stocks-and-shares Isas as well as his self-invested personal pension (Sipp) for many years. Paul, from Edinburgh, who works in telecoms systems testing, saves monthly into an Isa. He is a confident and informed investor who, over time, has evolved his own investment strategy. ‘The money I invest each month is put into low-cost tracker funds that mirror a major index such as the FTSE All-Share or the Dow Jones,’ he says. ‘That means I’m not going to beat the market, but I’m not going to lag behind it either, and the investment costs are low.

‘But then once a year, around Christmas, I go into my Isa and move a portion of the money out of the tracker funds and into more interesting, specialist funds, such as those investing in emerging markets or smaller companies.’

To select these funds, he uses the information on FundsNetwork as well as other investment websites.

There is a new and highly innovative alternative to this DIY investment approach that could appeal to Isa investors too apprehensive to go it alone.

Website Nutmeg, which has attracted 7,000 savers since its January launch, offers a straightforward online investment process where savers enter their investment objectives and tolerance of risk. The money is then invested by Nutmeg in the most appropriate of ten investment strategies, which are managed in a way commonly associated with huge, institutional funds. The costs are low, capped at a maximum of 1.3 per cent a year for the smallest investors.